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Debt Settlement | ||
A debt settlement is an agreement between a debtor and a creditor to fully satisfy a debt for a reduced payoff amount. A debt settlement is usually reached when a debtor is unable to fully meet his/her debt obligations due to financial hardships and attempts by the creditor to collect on the debt have failed. The creditor agrees to cancel part of the debt and accept the remaining sum as full repayment. Debt settlement is also called debt negotiation. Technically speaking, a debt settlement is the agreement while debt negotiation is the process through which both parties reach that agreement. Consumers who use debt settlement are those who are experiencing legitimate financial hardships, cannot afford to repay their debts through debt management plans offered by consumer credit counseling agencies and who also want to avoid filing bankruptcy. For this reason, debt settlement falls between consumer credit counseling and bankruptcy. Debt settlement programs are provided by third party debt resolution firms who set up payment plans, and then negotiate settlements on behalf of the consumer. Typically, debt settlement programs are able to lower monthly payment contributions to approximately half of the typical minimum monthly credit card payments, and get consumers debt free in a short period of time. It is important to select a reputable provider, including a member of an industry association and a member of the Better Business Bureau (BBB). Brief History of Debt SettlementAs a concept, lenders have been practicing debt settlement thousands of years ( Debt Forgiveness: Plainer Speaking, Please. by Stephen A. O’Connell). However, the business of debt settlement became prominent in With charge-offs (debts written-off by banks ) increasing, banks established debt settlement departments staffed with personnel who were authorized to negotiate with defaulted cardholders to reduce the outstanding balances in hopes to recover funds that would otherwise be lost if the cardholder filed for Chapter 7 bankruptcy. The settlements ranged between 25% and 65% of the outstanding balance (Sworn Testimony of Dr. Robert Manning, author of Credit Card Nation). In the 1990s, entrepreneurs began establishing companies to negotiate debt settlements with creditors on the debtors’ behalf. Unlike the creditor supported consumer credit counseling industry, debt settlement companies are usually for-profit companies that charge fees for their debt settlement related services. Another stark difference is that debt settlement companies do not negotiate reduction in interest rates, distribute monthly payments to creditors or report enrollment to credit bureaus. Instead, debt settlement companies negotiate reduction of the outstanding balance of each debt in exchange for a lump-sum payoff or short-term installment payoff. To support the debt settlement industry and develop standards and best practices, practitioners established the United States Organization for Bankruptcy Alternatives (USOBA) in 2004. In 2005, industry leaders established The Association of Settlement Companies ( TASC) to fight “unfair and ambiguous debt management legislation†in Copyright 2008 - France BtoB from Wikipédia
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